Tuesday, 15 January 2013

The Death of the Property Owning Democracy

Every family should have a stake in society and the privilege of a family home should not be restricted to the few. 
Margaret Thatcher, 17 October 1981.

The huge social and political revolution of 20th century Britain was the development of the property owning democracy. This is the idea that social harmony and progress are best achieved if everyone has an economic stake in society, an idea sometimes called ‘popular capitalism’. It has come to be associated primarily with home ownership, although originally it was a much wider concept.

Whether you agree with the idea or not, the property owning democracy has basically been the organising principle of British society since the Second World War, and even more so since the 1980’s. The idea is that if you use your income to purchase a home instead of rent someone else’s you end up with an asset which can fund your retirement or be used as an inheritance to give your children the best possible start in life. It is a socially desirable form of forced saving, and the economic underpinning of the family. It broadly worked because the vast majority of people had an interest in it sustaining itself, so that they could reap the benefits.

An unplanned consequence of the New Labour era is that this socio-economic model is dead. The graph below shows why:

That graph shows you how house prices have risen, adjusted for the rise in wages, to the point where it is impossible for the average first time buyer to get on the property ladder at all without assistance. I shall leave it to economists to argue about why this is, but for the moment I want to concentrate of the real life effects of this change.

It is no longer the case that everybody’s economic interests are in alignment. Once again I shall illustrate the point with a graph (click on the graph to enlarge it):

That graph shows the inflation adjusted fall in house prices since the credit crunch. There are two possible reactions to it, but they are dependent on your housing situation:
  1. That’s fantastic! Housing is becoming affordable again. One day, maybe I’ll be able to live in my own home and use it to provide for me in my old age, maybe even pass it on to my children. There is actually hope for the future, but the trend must continue.
  2. Disaster! I’ve worked all these years to service my enormous mortgage, making so many sacrifices to ensure that I have an asset to rely on in old age, and it’s just decreased in value by 20%. My entire life’s work depends on this trend being reversed.

That, my friends, is what an enormous political problem looks like. Society is divided by housing tenure, and one group is going to lose out, and lose out badly. When they lose, they won’t forgive the government whose policies they blame. Remember, serious political strategists spend their time looking at issues like this, not reading abstract philosophy. This is what decides elections, because this is what really matters to people. But then since it affects you, you probably knew that already. 

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